Italy Buries the EU’s Bank-Bailout Fund

France and Germany decided on the new debt rules in a meeting between their foreign ministers, without taking into account Italian requests for counting capital expenses in a separate budget. As a result, the Meloni government adopted Plan B, which envisioned a veto to the reform of the EU bank-bailout fund, the European Stability Mechanism.

The day after the decision on the new Stability Pact, on Dec. 21, the Italian Chamber of Deputies, on the recommendation of the Budget and Treasury Committee, voted against the ratification of the ESM. The opposition party M5S voted together with the Lega and Fratelli d’Italia (FdI), while the third government coalition partner Forza Italia (FI) abstained (184 against, 72 for and 44 abstentions). Following this vote, the EU has no real safety net for banks, as the current Single Resolution Fund, financed by the banks themselves, does not have enough money to handle a crisis of a “systemically important” bank.

Although the Lega had strongly campaigned against ratification, it was not clear how its coalition partner, Prime Minister Giorgia Meloni’s party FdI, would act. As Lega Senator Claudio Borghi, leader of the “No” campaign, explained to journalists, FdI was always against the ESM, but was waiting for the result of the negotiations on the Stability Pact before deciding. Since the government couldn’t reject both proposals, Borghi added, “we chose the one that was most harmful to Italy.”

Indeed, the Budget and Treasury Committee of the Chamber of Deputies wrote, in its vote recommendations, that the ESM “lacks proper mechanisms to guarantee the involvement of Parliament”, and that could “jeopardize the possibility for Parliament to monitor further payments of the earmarked capital”. In other words, it is unacceptable that ESM managers, under the treaty, could decide to call in billions in earmarked capital from member states, to be paid within one week, without Parliament’s approval.

The situation in the EU is now the following: at the end of December, the transitory period in which the Single Resolution Fund was backed by government credit lines, pending entry into force of the ESM reform, has expired. Now, EU member countries have two options: extend the transitory period or leave the safety net without a safety net.